VALLETTA, UW CONF ON LT UNEMP
April 28, 2011
“Long-term and Structural Unemployment
in the Great Recession”
Rob Valletta*
Federal Reserve Bank of San Francisco
*The views expressed are solely my own and are in no way
attributable to the Federal Reserve Bank of San Francisco
or the Board of Governors of the Federal Reserve System.
I thank Katherine Kuang for outstanding research assistance.
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April 28, 2011
VALLETTA, UW CONF ON LT UNEMP
Long-term unemployment at historic high
Unemployment Rate & Duration
Percent
(all unemp)
50
Percent
12
Mar.
10
40
Unemp. Rate
(left axis)
8
30
6
20
4
10
Unemp 27 weeks+
(right axis)
2
1967
0
1971
1975
1979
1983
1987
1991
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1995
1999
2003
2007
2011
VALLETTA, UW CONF ON LT UNEMP
April 28, 2011
Some definitions: types/sources of unemployment
Multiple variations on “structural unemployment:”
(1) often equated with persistent (long-term) unemployment; but this can
be cyclical (disappears as economy recovers)
(2) mismatch between skills/location of workers and jobs (common
definition)
(3) sources of unemployment (other than “frictional”) that contribute to a
higher equilibrium “natural rate of unemployment” or NAIRU (“nonaccelerating inflation rate of unemployment”).
My view: moderate amount of type 3 (about 1¼ percentage points), will
largely dissipate (see Daly-Hobijn-Valletta 2011; FRBSF WP 2011-05)
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April 28, 2011
VALLETTA, UW CONF ON LT UNEMP
Modest effect of UI extensions
UI extended up to max of 99 weeks in Nov. 2009
Limited effect on unemp duration and rate (0.3-0.9 p.p.)
(Valletta and Kuang 2010, Rothstein 2011 preliminary)
Unemployment Durations, by UI Eligibility
Weeks
40
30
20
Quits/entrants
(UI ineligible)
Job losers
(UI eligible)
10
0
2005
2006
2007
2008
2009
2010
Note: Authors' calculations of expected completed duration from CPS microdata. The gray area denotes the latest recession, dashed
vertical lines indicate effective dates for expansions of maximum UI duration under EUC08 and EB.
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VALLETTA, UW CONF ON LT UNEMP
Little or no “house lock” effect
Unemp Duration by Home Ownership
(MSAs with large price declines)
Weeks
Owners
Renters
40
30
20
10
0
2005
2006
2007
2008
2009
2010
Note: Authors' calculations from monthly CPS microdata. Duration
measured in expected completed form, see text for description.
MSA house prices from FHFA, change measured over 2007-2010
Gray bar denotes NBER recession date.
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April 28, 2011
April 28, 2011
VALLETTA, UW CONF ON LT UNEMP
Beveridge Curve suggests labor market mismatch
U.S. Beveridge Curve
Monthly, December 2000 to February 2011
Vacancy Rate
4.0
3.5
3.0
2.2 %points
2.5
2/11
4/10
3.1 %points
11/10
1/11
2.0
3/10
6/10
12/09
7/09
1.5
3
4
5
6
7
8
Unemployment Rate
Source: BLS JOLTS and CPS data. Dotted blue series indicates fit of values from December 2000 to June 2009.
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9
10
11
VALLETTA, UW CONF ON LT UNEMP
April 28, 2011
Emp growth has evened out, unemp high in some sectors
Dispersion Across 15 Major Industries
Weighted standard deviation of 12-month employment growth and unemployment rates
Percent
7
6
5
4
Employment growth
3
2
1
Unemployment rate
0
1970
1975
1980
1985
1990
1995
Source: Bureau of Labor Statistics and FRBSF
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2000
2005
2010
April 28, 2011
VALLETTA, UW CONF ON LT UNEMP
Main cause of LT unemp: massive job loss
Nonfarm Payroll Employment: 4 Recessions
Peak=100
106
1981-82
104
102
1990-91
100
98
2001
96
2007-09
94
92
-12
-6
0
6
12
18
Months since employment peak
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VALLETTA, UW CONF ON LT UNEMP
April 28, 2011
Some longer-term considerations
 Persistent unemployment can become structural
- “Hysteresis” (self-reinforcing) effects: skill
deterioration, reduced job attachment (80s Europe)
- Argues in favor of short-term stimulative policies
 Persistent unemployment has not appeared to exacerbate the
long-term trend towards labor market “polarization”
(hollowing out of the middle)
- Prolonged unemployment hits low-skilled hardest
 But education is not a panacea (returns to college flattening
out); perhaps need earlier or more targeted training
(Germany).
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